what is the objective of issuing bonus shares?

also tell objective of issuing conversion bonus shares

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  • Meaning of Bonus Shares:
    Sometimes a company cannot pay dividend in cash due to shortage of liquid funds, viz., cash, in spite of earning a large amount of profit for a particular period. Under the circumstances, the company issues new shares to the existing shareholders in lieu of paying dividend in cash.
    These shares are known as ‘Bonus Shares’. Such bonus shares are to be offered to the existing shareholders in proportion to the shareholdings and dividend rights. Generally, the company issues bonus shares out of profits and/ or reserve to the existing shareholders.
    advantage-
    (a) By issuing bonus shares shareholders are to be satisfied when the company cannot pay dividend in cash due to shortage of liquid funds, i.e., profit can be distributed without distributing the liquid resources, viz., cash.

    (b) By issuing bonus shares shareholders are to be satisfied particularly when the company does not prefer to pay dividend in cash for the purpose of either its extension or its working capital or any other specific purposes.
    (c) Sometimes a company is bound to reduce its reserve for the interest of its own. It may so happen that the amount of earning profit exceeds the amount of total paid up capital of the company which, in other words, encourages the competitors and creates unhealthy relationship between workers and the company.
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